The divestment campaign is part of activists’ strategy to bring about reductions in greenhouse gas emissions. It counteracts an entrenched economic and institutional system with vested interests. Fierce resistance is to be expected.

Now the debate is reaching South Africa. At a recent panel discussion hosted by the University of Cape Town African Climate and Development Initiative, I argued both for and against divestment. The broad principle is sound, but its application needs more sophistication.

The arguments for divestment

Historical analogy can be helpful in this regard. Consider the abolition movement opposing slavery. The moral case for countering climate change is arguably similarly strong. (But note that I am not suggesting coal miners are as directly exploitative as slave traders, nor am I recommending a latter-day corollary for the British navy’s volte-face from protector to opponent of the Atlantic slave trade.)

Resistance to the abolition movement highlighted the expected economic costs of doing away with slavery. As it happened, abolition created losses for some, but the broader economic impacts may well have been positive, not least because a reliance on slaves stifled innovation.

In a similar vein, an argument against divestment is that it will lead to reduced returns and higher risks for the investors and lower economic growth. Yet arguably our reliance on fossil fuels breeds the kind of intellectual laziness that slavery once did. Freeing ourselves from this laziness can unleash more creative and potentially exponential gains from renewable energy and other technologies and innovations.

This contributes to a number of analysts and asset managers supporting divestment not only because they are concerned with climate change, but also because companies producing fossil fuels do not offer good returns over the long run. They point to investment baskets excluding such companies doing just as well, or better, and they point out the risks associated with “stranded assets”. These are fossil fuel reserves that energy companies list as assets, but whose exploitation would explode multilateral agreements to curb emissions in the Paris agreement.

Some point to South Africa’s specific circumstances to oppose divestment, especially the relatively small size of its investment market, as well as the important role of fossil fuel companies in this market. Yet, even in a small market like South Africa, alternative companies can be added to the basket to maintain risk-adjusted return prospects.

The abolition analogy also helps counter claims that investment decisions are not political, as argued by Harvard President Drew Faust. It is disingenuous to say that investments are made purely for economic reasons, as long as they are legal. Laws change, and norms play a role too. Just because slavery was legal does not mean that it was morally or economically right.

A further counterclaim is that divestment won’t make a difference: there will always be others who will take your place to invest in fossil fuel companies. But, of course, this depends on the proportion of participants in the divestment movement, which may well reach a critical threshold sooner rather than later. More importantly, it is not primarily the economic impact on the fossil fuel industry that matters – it is the symbolic impacts, the stigmatisation. Some belittle symbolic impacts, but they can be very important. For instance, ask Shell about employing skilled engineers after the Brent Spar and Ken Saro-Wiwa debacles in the 1990s.

So there is a compelling moral, economic and environmental case for divestment. However, the current approach of the divestment campaign is misguided. To paraphrase Albert Einstein, it is trying to make things as simple as possible to enhance its impact – but in so doing it is making things too simple. Climate change is a complex problem and focusing on just one lever of change while disregarding the broader picture can be detrimental.

A broader approach

An important part of the divestment movement’s simplification process is to target a specific group of “fossil fuel companies”. But where would you legitimately draw the line? It will necessarily involve some arbitrary choices. Moreover, divesting from oil companies will probably mean investing instead in, say, banks – which then pass the money on to those same oil companies. A more inclusive, holistic approach to strategic change in a broader range of businesses (especially finance) is required. The focus should not be only on a specific group of companies, but on the direct and indirect greenhouse gas emissions of all organisations.

Second, there are likely to be unintended consequences from a single-minded approach to divestment. These include possible job losses, especially if divestment decisions are implemented abruptly. This is clearly a problem in the South African context. Companies and other stakeholders in their sectors need to be given signals that changes are going to be made over a specified period so that adaptations can be made as much as possible. Such adaption will include, for instance, reskilling of workers.

Third, despite clear signs of unscrupulous behaviour among some of the targeted energy companies, it is unhelpful to paint companies with a single brush. Furthermore, investors lose influence when they divest from one day to the next. As part of a gradual divestment strategy, an active shareholder engagement approach should be applied to cajole companies – those identified as “fossil fuel companies” and others, especially banks – into making a broader array of shifts.

Fourth, we need to recognise that the largest proportion of fossil fuels are extracted and burnt by governments and their state-owned enterprises. In the South African context, it would be silly to focus activists’ attention only on Sasol (the second largest polluter), while disregarding state-owned energy company Eskom (by far the largest polluter). In addition, we need more concerted efforts to get rid of state subsidies for fossil fuels, which remain huge.

Finally, any organisation opting to include divestment into its strategy must get its own house in order. It would be hypocritical of the University of Cape Town, where I work, to divest from oil companies without making much more committed changes to energy consumption and generation on campus, as well as to employees’ travel arrangements. Indeed, a vigorously debated question during our panel discussion was whether our current emphasis on transforming and decolonising South African universities was preventing attention to climate change and related problems.

Transparent and vocal responses needed

In sum, universities and others should develop a hybrid approach that connects an active shareholder engagement strategy with clear expectations on a range of key social, environmental and governance issues. The parameters for such engagement exist in the form of the United Nations Principles for Responsible Investment, to which organisations and higher education institutions should subscribe, and which they should then vigorously implement.

But this engagement needs to be beefed up with much clearer expectations, especially on greenhouse gas emissions. If such targets are not met, we shall withdraw funds. Moreover, this should all be done not just in a transparent manner, but also vocally, so that the message is loud and clear: our research shows that current responses to climate change are too meek and we’re putting our money where our mouth is.